Your tenant pays the rent in cash.
There is no standing order showing on your bank statement and no monthly bank transfer labelled “rent”.
So does that make any difference when it comes to tax?
No.
If you receive rental income in cash, it is still rental income and it still needs to be taken into account when working out your rental profit.
The way your tenant pays you does not change the nature of the income.
Cash rent is still rental income
A tenant might pay their rent in several different ways.
They might send it by bank transfer.
They might set up a standing order.
A letting agent might collect it on your behalf.
Or they might pay you in cash.
From a tax point of view, the important issue is that you have received rent from letting your property — not whether the money arrived electronically or was handed to you in cash.
“But the cash never went into my bank account”
That does not mean it disappears from your rental records.
Imagine your tenant pays you £1,000 a month in cash.
You receive £12,000 during the tax year but only deposit £5,000 of it into your bank account because you use some of the cash for other things.
That does not make your rental income £5,000.
You received £12,000 of rent.
The fact that some of it never reached your bank account does not change that.
This is why you should not rely solely on your bank statements when keeping your rental records.
Keep a proper record of cash received
If your tenant pays in cash, make sure you have a clear record of what you received.
That might include:
- the date the payment was received
- the amount
- which rental period it relates to
- the property it relates to, if you have more than one
- receipts or other records provided to the tenant
The important thing is that you can establish the rental income received during the relevant tax year.
What if you use the cash to pay property expenses?
Suppose your tenant gives you £1,000 in cash and you immediately use £300 of it to pay a contractor for an allowable repair.
You should not simply record £700 as rental income.
You received £1,000 of rent.
The £300 repair is a separate transaction and, if it meets the normal conditions for an allowable property-business expense, it may be deducted when calculating your rental profit.
So you need to record the income and the expense separately.
This is the same reason landlords using letting agents should understand the gross rent received and the expenses deducted, rather than simply treating the net amount transferred by the agent as their rental income.
Related video: If you are unsure what actually counts as rental income in the first place, watch my video Rental Income: What Actually Counts as Income for a Landlord?
Video is live tomorrow
What if I have received cash rent in previous years and never declared it?
This is where the issue becomes more serious.
If you have received rental income in previous years that should have been reported to HMRC, the fact that it was paid in cash does not mean those years can simply be ignored.
If this is your situation, you may also find How Do You Tell HMRC About Undeclared Rental Income? (UK Guide) useful, where I explain what to consider when bringing previously undeclared rental income up to date.
Before deciding what needs to be done, establish the rental income and allowable expenses for the relevant years.
If some of your historic records are missing, that does not necessarily mean you cannot deal with the position. I explain this in more detail in Undeclared Rental Income: What If I Can’t Find My Records?.
Where records are incomplete, figures may sometimes need to be reconstructed using the information that is still available. Any estimates should have a reasonable basis, and you should keep a record of how you arrived at them.
Do not confuse “cash” with “invisible”
There is an important distinction here.
Cash can be harder to see when you are looking back through bank statements.
That does not mean cash rental income is outside the tax system.
If you received rent, you need to consider it when calculating your property income regardless of how your tenant paid you.
And if rental income from earlier years has not been reported, do not assume that because HMRC has not contacted you, nothing needs to be done.
The key point
When you are working out your rental income, ask:
How much rent did I actually receive?
Not:
How much rent appeared in my bank account?
Those figures may be the same.
But where rent has been paid in cash, they may not be.
The payment method does not determine whether the rent needs to be declared.
What matters is the rental income you received.
Need help with undeclared rental income?
If you have received rental income that has not previously been reported to HMRC — whether it was paid in cash, by bank transfer or through a letting agent — it is important to establish the history and work out the appropriate way to bring your tax affairs up to date.
At Grace Certified Accountants, we help landlords review historic rental income, reconstruct records where necessary and determine the appropriate route for dealing with undeclared property income.
You can book a Paid Tax & Property Consultation to discuss your circumstances and the appropriate next steps.